Question

Suppose a competitive firm pays a wage of $12 an hour and sells its product at $3 per unit. Assume that labor is the only input. If hiring another worker would increase output by five units per hour, then to maximize profits the firm should Group of answer choices

Answer 1

The answer is 'hire the additional worker'

Step-by-step explanation:

The firm should hire the additional worker.

An organization should hire additional workers to increase its profits if the marginal revenue product of labor is more than the wage rate.

Let's do the calculation:

The firm sells the product at $3

And hiring another product will increase the output by 5units

The total cost will be 3 x 5

= $15

And the firm pays the labour $13 for producing the 5 units.

The gain is $2 ($15 - $13).

Therefore, the firm should hire the additional worker.